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The Financialization of China

Financial sector activity appeared larger as a proportion of China’s economy in 2015 than it was in the United States at its peak in the last decade. While the importance of financial sector growth in keeping headline real GDP elevated throughout last year has been well-publicized, financial activity has also heavily distorted China’s nominal GDP data, explaining much of the pricing growth in the services sector. Nominal growth in the Chinese economy in 2015 excluding financial services was only 5.1%. The financial sector activity also helps to explain a growing divergence between skyrocketing bank asset levels, which rose by $4.1 trillion in 2015, and weakening credit growth to the real economy, suggesting an unsustainable growth of leverage within the Chinese banking system.

Posted August 1, 2017
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